<250k-USDC-raise-via-Arbor-Bonds>

--- LEAP: <to be assigned> title: <250k-USDC-raise-via-Arbor-Bonds> status: Draft author: Arbor Finance @arborfinance, Cameron Schorg @schorgie30 created: 2023-03-15 requires (*optional): <LEAP number(s)> ---  This is the suggested template for new LEAP. Note that a LEAP number will be assigned by an editor. When opening a pull request to submit your LEAP, please use an abbreviated title in the filename, `leap-draft_title_abbrev.md`. The title should be 44 characters or less. ## Simple Summary  This LEAP proposes the Lyra DAO raise $250k USDC via the [Arbor Bond Protocol](https://arbor.garden/) for the purpose of cheaper LyETHpt Protocol Owned Liqudiity (POL) on the Optimism Newport release. ## Abstract  This proposal will establish the terms in which the Lyra DAO can create and sell $250k USDC worth of Arbor bonds to deploy into the sETH Lyra vaults on Optimism Newport. The Arbor bonds can be thought of like fixed rate and term loans where the maturity date, interest rate, and collaterlization ratio are all established at the issuance of the bonds. The bonds are all over-collateralized with the DAOs treasury assets, however, the bonds are non-liquidatable. This means the collateral assets could devalue to a point below the total borrowed amount without triggering a liquidation. The borrowed assets (principal) and interest are due in a balloon payment upon reaching maturity. The Lyra DAO will deposit collateral into [Arbor's bond factory](https://app.arbor.finance/bonds/create) minting the bonds and will then sell the bond tokens at a discount via Arbor's [bond auction](https://app.arbor.finance/auctions/create) interface ([gnosis's auction](https://gnosis-auction.eth.link/#/)). A max interest rate will be established at the onset of the auction and the final settlment interest rate will be at or below that rate. The USDC proceeds from the auction will be sent to the DAO's wallet and can then be depostied into the sETH vaults on Optimism Newport. If Lyra does not repay principal and interest by the maturity date, there will be a seven day grace period. If Lyra does not make the payment within the grace period, the posted collateral can be claimed by bondholders on a pro rata basis. DAOs who default will incur serious reputational damage which would impair their ability to continue operating in the sector as a record of the default will exist on-chain. ## Motivation  Lyra vaults need large amounts of liquidity to signal to market participants the general safety and validity of a profitable opportunity. Liquidity mining programs have long been the most used mechanism to incentivize this liquidity. This is evident in many other protocols but also via LEAPs 3,4, and recently 44. Some of the major downsides of securing liquidty via liquidity mining programs are potential sell pressure of the Lyra token from farmers, mercenary liqudity (not sticky), and the overall cost of these programs. Protocols have the option to own their own liquidity via Protocol Owned Liquidity (POL). Rather than selling Lyra tokens for USDC or financing the POL another way, the DAO can raise capital at fixed rates and terms via Arbor and ensure their POL was obtained via the most capital efficient way. Aside from benefiting the Lyra DAO, this solution will also benefit Lyra users by providing more liquid and stable Lyra vaults. ## Specification  Lyra to create a collateral basket token via protocol by depositng $250k OP, $250k Lyra, and $250k LyETHpt LP tokens into the token set mint factory. Refer to the [token set](https://optimistic.etherscan.io/token/0x1905e0061ea9afdffa34dc0f299e6c90999e76bb) made using [TokenSets](https://docs.tokensets.com/). This is currently considered a test set, as should the prices or the deposited amounts of tokens change, the set will be remade to maintain the appropriate token weights. Lyra to create bonds on Arbor by depositing the previosuly created collateral assets to the [Arbor bond factory](https://app.arbor.finance/bonds/create) using the following terms: 3 month maturity 300% collateralization ratio 18% max interest rate Arbor will deploy ETH mainnet contracts to Optimism to faciliate this bond offering. ### Overview  With the approval of this LEAP, Lyra will be able to fund $250k USDC of Protocol Owned Liquidity. This will be achieved by collateralizing a 3 month bond on Arbor Finance with $750k of Lyra owned collateral at a max interest rate of 18%. ### Rationale  Funding POL via Arbor is a more capital efficient strategy than funding liquidity with Lyra tokens. ### Technical Specification  There are no specific changes within the Lyra protocol. There are normally two steps in an issuance through Arbor Protocol. These steps are simply to create a Bond and create an auction with the Bond. However, because the collateral being used must be "wrapped" into a single ERC-20 using the Set Protocol, that must be done as well. #### Token Set Collateralization The Set is already created and viewable [here](https://optimistic.etherscan.io/token/0x1905e0061ea9afdffa34dc0f299e6c90999e76bb), and to get the collateral tokens, there will be four transactions. 1. Approve tokens to be transferred into the Token Set (one transaction per token). 2. Issue Set tokens by transferring the LP tokens, OP tokens, and Lyra tokens. This can be done through TokenSets UI with an EOA or with a multisig by interacting directly with the [basicIssuanceModule](https://optimistic.etherscan.io/address/0xe1B7e8D3B385A19173ECd7dEAeDD1368f8706263) using the tokenSet address. #### Bond Creation Bond creation requires two transactions. 1. Approve collateral tokens to be "spent" by the [Arbor Bond Factory](https://etherscan.io/address/0x1533eb8c6cc510863b496d182596ab0e9e77a00c#code). 2. Create a bond using the [Arbor Bond Factory](https://etherscan.io/address/0x1533eb8c6cc510863b496d182596ab0e9e77a00c#code) which will immediately lock the collateral and mint a proportional amount of Bond tokens. #### Bond Auction Auctioning the newly created bonds also requires two transactions. 1. Approve the Bond tokens to be "spent" by [Gnosis EasyAuction](https://etherscan.io/address/0x0b7ffc1f4ad541a4ed16b40d8c37f0929158d101). 2. Auction creation using [Gnosis EasyAuction](https://etherscan.io/address/0x0b7ffc1f4ad541a4ed16b40d8c37f0929158d101) which will immediately lock the bond tokens and start an auction with the specified parameters. ### Test Cases  Arbor has successfully conducted 3 different bond issuances. 1 of the issuances has reached maturity and been fully paid back. [Ribbon Finance DAO $3M USDC issuance](https://app.arbor.finance/auctions/270) [ShapeShift DAO $95,567 USDC issuance](https://app.arbor.finance/auctions/399) [ShapeShift DAO $33,245 USDC issuance](https://app.arbor.finance/auctions/443) We have included the set protocol tokens as part of Arbor's [Bond testing suite](https://github.com/alwaysbegrowing/arbor-contracts/tree/main/test). This shows that the normal functioning of the Bond protocol works with the given token set. Additionally audits of the Arbor protocol and Set protocols can be found [here](https://github.com/alwaysbegrowing/arbor-contracts/tree/main/audits) and [here](https://www.tokensets.com/security). Upon passing governance, Arbor will deploy all smart contracts that are needed onto the OP network and update addresses where appropriate. ### Configurable Values  Total Amount to Raise:$250k USDC Bond Maturity: 3 months Max Interest Rate: 18% Collateralization Ratio: 300% consisting of $250k OP, $250k Lyra, $250k sETH LP tokens ## Copyright Copyright and related rights waived via [CC0](https://creativecommons.org/publicdomain/zero/1.0/).